Every cent counts and adds up to total expenses when you're running a business.
Mileage reimbursement can constitute a hefty portion of these expenses, so it's crucial to keep a close eye on whether employee reports are accurate.
Otherwise, you risk spending more money reimbursing your employees, falling victim to odometer rollback fraud, or even worse, getting into a legal dispute with the IRS over incorrect odometer readings.
Luckily, relying on an odometer isn't the only way to capture mileage. You can use a more reliable and accurate method - a GPS-powered employee tracking tool.
This article will compare GPS vs. odometer accuracy and help you understand how to stay IRS compliant and cut your expenses.
What Is the Odometer and How Does It Work?
Before we can decide on GPS vs. odometer accuracy and understand which method is better for your business, we have to understand how each of the two works.
Simply put, the odometer is a device that measures the distance a vehicle has traveled by counting wheel rotations and multiplying them by the tire circumference.
The tire circumference is calculated by multiplying its diameter by pi or 3.1416.
This is a pretty simple mechanism that has been in use for decades. Although there are mechanical, digital, or electromechanical, they all work by recording the number of wheel rotations.
The main difference is in the technology used. Since digital odometers are more sophisticated, they're considered more accurate than their mechanical counterparts.
However, no odometer is 100% accurate, so there's a discrepancy when comparing vehicle odometer readings with the distance calculated by online map services.
What Affects Odometer Data Accuracy?
There are different factors that can affect odometer readings and data accuracy.
It's worth mentioning no law regulates odometer accuracy. However, it plays an important role in reimbursing your employees. However, the Federal Odometer Act forbids tampering with the vehicle mileage, but that's something that you have to pay attention to when purchasing a second-hand business vehicle.
Here are the main reasons why the odometer might be off.
Worn Out Tires
Since the odometer counts the number of wheel revolutions, it's logical that tire condition can have a significant impact on the readings.
New tires have an average tread depth of 10/32 to 11/32 inches, which means their diameter and circumference are greater than those of old, worn-out tires. The legal minimum tread depth is 2/32 of an inch, and such shallow and worn-out tires are shorter in diameter by ½ to 6/10 inches.
Translated to layman's terms, this practically means that new tires with full tread depth will travel more distance in a single revolution.
Given that the odometer uses tire diameter and circumference to calculate the distance, it's clear how wear and tear can influence the readings and affect mileage data.
Wrong Size Tires
Similarly, switching to bigger tires or using mismatched tires will also mess up your odometer readings.
That's why it's essential to make sure your tires have a good tread depth and that they are properly inflated, as well as to calibrate the odometer in case you change the tire size.
However, the trouble is that all this is hard to monitor when your employees are using their own personal vehicles for business purposes. It would be too much work to check their tires and odometers all the time to minimize the error margin.
Different Odometer Types
Another factor that can make a significant difference when comparing GPS vs. odometer accuracy is the type of odometer used.
We've already mentioned that there are mechanical, electronic, and hybrid odometers. Unfortunately, none of them can match the accuracy of a GPS-powered tool.
The mechanical odometer has an error margin of up to 5% by default. But if we add the previously mentioned wear and tear factors, the actual gap can reach even 12%-15%.
Electronic or hybrid odometer
When it comes to the electronic or electromechanical odometer, it's usually more accurate because its data is based on magnetic or optical sensors used for counting rotations. This means that its margin error doesn't exceed 7%.
In addition to this, we should bear in mind that in some cases, the speedometer can affect the odometer readings.
The Society of Automotive Engineers defined in its standards that speedometer, tachograph, and odometer readings can vary +/-4% from the actual values.
However, given that speedometers can't show lower than the actual speed but can show up to 10%+6mph more, if the odometer is connected with the speed sensor, it will only give higher readings.
Most car manufacturers calibrate their odometers and speedometers to allow for 5-10% higher readings because of traffic safety and preventing accidents.
As you can see, there's a lot to be taken into consideration when talking about the odometer accuracy. All these factors can make your employees' mileage reports significantly less accurate, which will, in turn, increase your reimbursement expenses.
Plus, using the odometer also makes it easier for your employees to pad their expenses, which is why expense reimbursement is among the top 3 occupational fraud schemes.
What Is the Difference Between the Distance and Odometer Readings?
Since the two are completely different and can't be compared, a much better question would be: How to ensure your employees accurately capture mileage using the odometer?
This doesn't seem to be complicated at first glance: all they have to do is take note of their odometer reading before and after every business trip. The difference is the mileage that they should be reimbursed for.
But, sometimes, employees forget to jot down odometer readings and use the guesstimate method when it's time to submit their logs. Or they can, for example, take a longer route. Not to mention that some employees tend to intentionally pad their mileage claims.
In each of these cases, your reimbursement expenses will be higher than they should be, and you can bet that the IRS won't be happy about that when the time comes to file your tax return.
Remember that mileage reimbursement is a tax-free expense only if the mileage logs are compliant with the IRS regulations.
This is another reason why the GPS vs. odometer accuracy comparison will favor satellite-based technology.
How Does GPS Work?
You won't be wrong to conclude that odometer readings are usually flawed to a certain extent and that the winner of the GPS vs. odometer accuracy debate is the former. Here's why this is so.
The Global Positioning System (GPS) is a satellite-based technology for determining the position, time, speed, and mileage accurately. This sophisticated system is capable of pinpointing your location within a 5-meter radius since it relies on the data from at least four satellites circling around the Earth.
Thanks to being equipped with atomic clocks, GPS satellites provide precise time. The time information is incorporated into the broadcasts that the satellite continuously sends, and the receiver uses this data to determine when the signal was sent.
Based on the signals received from the Global Navigation Satelite System, the tracker uses its distance from them to determine the exact location, speed, and mileage.
In short, when comparing GPS vs. odometer accuracy, GPS wins by a landslide since the tire condition and similar factors play no role in whether the captured mileage will be accurate.
What Does This Mean for Employers with a Mobile Workforce?
Nowadays, most smartphones and tablets have GPS chips, which means that you can easily track your employees' mileage, speed, and even routes using this technology.
Improve Transparency and Accountability
Timeero's mileage tracking app powered by GPS allows you to have an accurate insight into how many miles every employee traveled. Besides that, its breadcrumb trail feature offers even more details about their every trip since you can practically replay each route.
Timeero is also capable of tracking speed, and it works offline.
Geofencing is another super helpful feature since you won't have to worry whether your employees will forget to clock in or out. Unlike the old-school odometer method that requires you to trust your employees, GPS automates the entire process and gives you complete control over your expenses.
Finally, the timestamp vouches for the location accuracy, which means that you'll improve the accountability of your employees and ensure the IRS compliance of your mileage log.
Streamline the Expense Reporting Process
As a result, you'll both have access to real-time accurate mileage readings, at the same time eliminating the odds of padding business travel expenses.
You don't even need to install expensive and bulky hardware. All your employees need to do is download the app to their mobile devices and log in to their accounts, and they're good to go.
Timeero offers a number of different integrations that include the most popular accounting and payroll applications. This way, you can simply approve reports and export them to the accounting software with a click.
You and your employees will save a lot of time by ditching the old-fashioned pen and paper approach and spreadsheets.
Stay IRS Compliant
The IRS is particularly strict and harsh when it comes to tax returns. For example, suppose they suspect that something is off with your deduction claims. In that case, you can be subjected to an audit and scrutinized.
To prevent this unpleasant scenario, it's essential to keep your mileage logs compliant with the IRS requirements.
That means recording the following details:
- The number of miles traveled for business purposes
- Total miles traveled during the business year
- The dates of business trips
- The purpose of each trip.
Keeping all these records can be complex and prone to human error, and if any of these details are missing, you can be in trouble with the IRS.
A GPS-based app like Timeero that will capture all the data in an IRS-compliant manner can be a life- and budget-saver.
Which Is More Accurate: GPS or Odometer?
Solving the GPS vs. odometer accuracy dilemma can be a game-changer for all businesses that rely on mobile employees. Making sure that the mileage is accurately captured and keeping reimbursement expenses in check can be quite an endeavor when using the manual approach with odometer readings.
A GPS-powered mileage-tracking app like Timeero will streamline the entire process and bring you peace of mind regarding IRS compliance, tracking expenses, and employee accountability.